Title

Authors

Document Type

Journal article

Source Publication

Journal of Economics

Publication Date

7-1-2007

Volume

91

Issue

3

First Page

245

Last Page

262

Abstract

Relative to single-product firms, a multiproduct monopolist can internalize the negative externalities of its R&D investments (the "cannibalization effect") in two ways: (1) To lower R&D investment for each product; and (2) To delete some of its product lines so as to enlarge the market size for the remaining lines. It is shown that line deletion is profitable if products are close substitutes. If products are not close substitutes, the multiproduct monopolist keeps all product lines and invests less in cost-reducing R&D than single-product firms engaging in Cournot competition with product differentiation. However, it invests more in R&D than single-product firms if there are significant economies of scope in R&D, or if the oligopolistic firms can cooperate in their R&D decisions.